International investors dominate Glasgow office market during record year

2018-04-16T05:00:00Z

International investors ploughed £300m into Glasgow’s office market in 2017, significantly outgunning domestic buyers during the city’s busiest 12 months for office investment since the financial crash, according to property consultancy JLL.

A total of £461 million was spent across 23 office deals in 2017, Glasgow’s highest volume for investment deals since 2006 when a total of £367m was spent.

Ten of Glasgow’s 23 deals last year involved international buyers, accounting for 65% of 2017’s total volume, showing the prominence of global currency in the largest sales.

In 2016, when £208m was transacted across 14 deals, foreign buyers made up 52% of the total volume. Notably, of the 11 deals transacted in 2006, only one was a led by a European investor, and two Irish Investors with the rest accounted for by UK investors.

In recent years, Glasgow has witnessed a significant increase in interest from investors in Asia, New Zealand, the Middle East, Europe and America. Glasgow’s appeal for international investors is due to a number of factors including reduced competition from UK Institutions, value for money, a weakened pound, and strong local market fundamentals.

Some of last year’s biggest deals included Irish property investment firm Wirefox buying the 100,000 sq ft Capella building on York Street for £43.5 million and American group, Starwood Capital, acquiring 172,307 sq ft office development, St Vincent Plaza, for approximately £75m.

Despite a steady waning in the frequency of domestic investment in Glasgow, 12 of the city’s top 25 office buildings by size, price and quality are still owned by UK Institutional Investors.

In 2016, JLL reported that 93% of investment into Edinburgh offices came from overseas, highlighting the capital’s profile amongst international buyers.

According to Ross Burns, director Capital Markets at JLL Scotland, Glasgow’s investor profile is also changing, and can be explained due to a number of factors:

Domestic caution

“In recent years, the UK Institutions have scaled back their Scottish portfolios due to an uncertain political landscape in Scotland, leaving the door very much open for overseas buyers. With most international investors working with a wide portfolio with assets around the world, there is often less risk associated with investing in a market like Glasgow, regardless of any external political factors.

“As more overseas investors find value in a market operating with the weakened pound, confidence has built, and we expect to see this trend continue for some time. UK Private investors have still been involved in a number of deals under £10m, but at the upper end international money has dominated in recent years.”

Regional value

“Another reason for Glasgow’s popularity amongst overseas investors lies in the city’s regional value when compared to English cities. Investors in London, disillusioned by a saturated and inflated market, have also started to see the value of the regional market in recent years. In comparison to some of the UK’s other strong regional markets such as Manchester and Birmingham, pricing has been discounted in Scotland typically. Glasgow’s prime yields of 5.25% are currently far more attractive than those in Manchester 4.75% or Birmingham 4.75%.”

Strong and stable

“For international investors, faced with American volatility, Russian posturing, and political instability in the Middle East, the UK and Scotland is still a relatively safe and stable market to invest in. Glasgow, with a broad occupier base, growing work force, five highly regarded Universities and a strong tourism market is perceived by many investors as an attractive long term bet, regardless of any Brexit outcome and also offers greater value than the more well-known city of Edinburgh.”

Impact of Brexit

“The immediate impact of the Referendum outcome resulted in the de-valuation of Sterling, generally making the UK look like better value, as investors trading in the Dollar or Euro saw a positive currency dynamic. With uncertainty on the horizon, the UK Institutional Investors reaction has been to seek out longer steadier sources of income from the Alternatives Sector, such as retail, hotels and car showrooms, leaving the door open to new kinds of investors from overseas.”

JLL’s International Capital Group (ICG) is a dedicated team of experienced capital markets professionals who specialise in facilitating global capital flows and investment transactions. The group enables its clients to cross regional borders in Europe, the Middle East, Africa, Asia Pacific and the Americas.